You are probably aware that the UAE and other Gulf Cooperation Council (“GCC”) countries are introducing VAT on 1st January 2018. VAT is a consumption tax that will be imposed on most domestic supplies of goods and services in the UAE at a standard rate of 5%, with few exemptions and zero-ratings applied to specified goods and services.
At Insurance House P.S.C (“IH”), we are preparing for VAT implementation by taking the necessary steps to ensure that we comply with all requirements before the deadline. The Ministry of Finance (“MoF”) has already released the GCC VAT framework (“VAT framework”) and has published a compilation of Frequently Asked Questions (“FAQs”) on its website www.mof.gov.ae to increase awareness about the applicability of VAT.
The MoF has also set up the Federal Tax Authority (“FTA”) to govern VAT and other taxes in the UAE, and a dedicated website, www.tax.gov.ae provides necessary information.
We will be required by law to charge you VAT on all insurance policies made by us, which are likely to include the explicit fees we charge for services provided. The terms and conditions of your agreements, as available on the Insurance House website, will be updated accordingly. As per the UAE VAT law, margin/interest and currency spreads charged by us are likely to be exempt from any VAT.
Based on the information publicly available, we understand that most of the goods and services supplied within UAE would attract VAT at a standard rate of 5% with a few exceptions. The exceptions may be in the form of VAT zero-ratings or VAT exemptions. In addition, if services are provided to non-UAE GCC customers who are VAT registered in that specific GCC country, then UAE VAT of 5% will not be charged.
Insurance House has begun this process and it is likely that even though interest rate or margin we charge on our insurance policies will be exempt from the VAT. In addition, VAT will still be chargeable at the standard rate (5%) on all of our taxable supplies.
As VAT is a consumption tax, the overall burden of VAT sits with the final consumer and is not designed to be a cost for businesses. If a business only makes taxable supplies it is expected that it will be able to recover input VAT charged to it by its suppliers in full.